So, what goes into a real estate appraisal? It all starts with the initial collection of public records associated with the Subject property: usually related to address and ownership, legal description and any additional information unique to the Subject. The next step is the actual inspection. It is an appraiser's duty to inspect the property being appraised to determine the true status of that property. He or she must actually see features, such as the number of bedrooms, bathrooms, the location, and so on, to insure that they really exist and are in the condition a reasonable buyer would expect them to be. The inspection often includes a sketch of your home and other structures with the proper square footage and a general room layout. Most importantly, the appraiser looks for any obvious features - or defects - that would affect the value of the house. Once the site has been inspected, an appraiser uses two or three approaches to determining the value of real property: a cost approach, a sales comparison and, in the case of a rental property, an income/capitalization approach, rent schedule.
The cost approach is the easiest to understand. The appraiser uses information on local building costs, labor rates and other factors to estimate how much it would cost to construct a property similar to the one being appraised. In larger “mainland” markets, this value often sets the upper limit of what a property would sell for. After all, “Why would you pay more for an existing property if you could spend less and build a brand new home instead?” This question is not that easily answered in the San Juans; there are often mitigating factors, such as ferry transportation costs, additional costs for material, a shortage of labor, access difficulties and other unique issues which can make building appear to be an unending process. These are usually not reflected in the cost approach. InterIsland Appraisal invests the time and experience to recognize and consider these factors, over the “off island” appraiser who may be just passing through on a day visit.
The appraiser primarily relies on the sales comparison approach to value. Your appraiser must know the intricate details of the neighborhoods in which they work and understand the value of certain features to the residents of the community. We know the difference between a local and a distant territorial view, high, medium and low bank waterfront properties as well as island location, and, unique to the northwest, solar exposure. We use this information to determine which attributes of a property will make a difference in the value. Then the appraiser researches recent sales in the vicinity and finds properties which are comparable (or "comps") to the subject being appraised. We know, for example, that a good quality marine view home on San Juan Island’s Mount Dallas, enjoys almost the same market appeal (and therefore value) as a similar quality view home on Orcas Island’s Buck Mountain, and will make the effort to research both areas instead of settling for a dissimilar “quick comp” in the immediate area. The sales prices of these properties are used as bases to begin the sales comparison approach.Over the past 20 years of serving the San Juans exclusively, we at InterIsland Appraisal have accumulated a database which allows us a more detailed knowledge of the value of specific components -such as extra bathrooms, hardwood floors, fireplaces or view lots (just to name a few.) We then adjust the comparable properties more accurately to portray the subject property. For example, if the your home has a fireplace and the comparable property does not, the appraiser may add the estimated value of a fireplace to the sales price of the Comp, this achieving parity. If the subject property has an extra half bathroom and the comparable does not, the appraiser might add a certain amount to the comparable property. In the case of income-producing properties - rental houses for example - the appraiser may use a third approach to valuing the property. In this case, the amount of income the property produces is used to arrive at the current value of those revenues over the foreseeable future.
Once the analyzed data from all the above approaches are combined, the appraiser is ready to formulate an Opinion (or estimate) of Value for the subject property. It is important to note that while this amount is the best probable indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller or buyer motivation, urgency, or other non-measurable factors which may adjust the final price up or down. But the appraised value is most often used as a guideline for lenders who don't want to lend a buyer more money than the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.